Reported total revenue increased 13% YoY, benefitting from currency appreciation and the Warid transaction with effect from 1 July 2016, while organically1 decreasing by 1%, due to weakness in Algeria, partially offset by strong growth in Pakistan, Ukraine and Uzbekistan Strong organic growth in mobile data revenue of 31% YoY Reported EBITDA increased 14% YoY, also benefitting from currency tailwinds and the Warid transaction; underlying EBITDA2 organically1 increased 0.5% with a margin of 39% Underlying equity free cash3 flow of USD 194 million up from USD 41 million in Q1 2016 FY 2017 targets4 confirmed MAIN EVENTS
VEON: a new personal internet experience and company name Euronext Amsterdam listing completed VEON free float increased to 24.1% after Telenor's sale in the open market of 70 million VEON shares in April 2017 Final 2016 dividend of US 19.5 cents per share paid on 12 April 2017 Increase of VEON's stake in GTH to 57.7% after GTH completion of a Share Buy-Back and cancellation of treasury shares Refinancing of maturing debt in progress VEON Ltd. (NASDAQ: VEON, Euronext Amsterdam: VEON) a leading global provider of telecommunications and digital services headquartered in Amsterdam and serving over 235 million customers, today announces financial and operating results for the quarter ended 31 March 2017.
USD million
1Q17
1Q16
pro-forma Warid5
1Q16
reported
Reported
YoY
Organic
YoY 1
Total revenue, of which
2,281
2,105
2,017
13.1%
(1.0%)
mobile and fixed service revenue
2,202
2,030
1,948
13.1%
(0.8%)
of which mobile data revenue
449
311
304
47.6%
31.0%
EBITDA
861
778
758
13.6%
1.9%
EBITDA underlying 2
891
818
798
11.6%
0.5%
EBITDA margin underlying 2(EBITDA underlying/total revenue)
39.1%
38.9%
39.6%
(0.5p.p.)
0.6p.p
Profit/(loss) from continued operations
(11)
19
37
n.m
Profit/(loss) from discontinued operations
-
196
196
n.m
Profit/(loss) for the period attributable to VEON shareholders
(4)
169
187
n.m
Underlying equity free cash flow 3
194
n.a.
41
373%
Capital expenditures excl. licenses
263
158
150
75%
LTM capex excl. licenses/revenue
18.7%
18.2%
18.2%
0.6p.p.
Net debt
7,661
n.a.
6,407
20%
Net debt/LTM EBITDA underlying
2.1
n.a.
1.7
Total mobile customer (millions, excluding Italy)
207
204
194
6.2%
Total fixed-line broadband customers (millions)
3.4
3.4
3.4
1.6%
1) Organic change reflects changes in revenue and EBITDA excluding foreign currency movements and other factors,
such as businesses under liquidation, disposals, mergers and acquisitions (see Attachment C for reconciliations)
2) Underlying EBITDA excludes transformation costs and material exceptional items, see Attachment C for
reconciliations
3) Underlying equity free cash flow is defined as free cash flow from operating activities less free cash flow used in
investing activities, excluding M & A transactions, transformation costs and other one-off items
4) FY 2017 targets based on pro-forma results for 2016, including 12 months of Warid contribution; organic targets for
revenue and underlying EBITDA margin are at constant currency, excluding exceptional items, e.g. transformation
costs and M & A. Equity free cash flow is calculated at the target rates for 2017 (see Attachment C)
5) Pro-forma assuming that the results of Warid have been consolidated (including intercompany eliminations) within
VEON's results with effect from 1 January 2016
JEAN-YVES CHARLIER, CHIEF EXECUTIVE OFFICER, COMMENTS:
"In the first quarter of 2017, VEON recorded double-digit revenue and EBITDA growth, boosted by currency tailwinds. Furthermore, we generated almost USD 200 million in underlying equity free cash flow and are on track with our guidance for the year. The positive momentum of 2016 is continuing into 2017 while our Italian joint-venture also had a positive start into the year, with solid revenue growth and synergies on track.
The first quarter of 2017 was pivotal for VEON, with the acceleration of our business transformation, demonstrated through several major milestones. We announced a sustainable and progressive dividend policy and paid final dividends for 2016. In addition, we accelerated our digital strategy, with the rebranding of the company as VEON. Finally, on 4 April 2017, VEON listed on Euronext Amsterdam, complementing our current listing on NASDAQ."
PRESENTATION OF FINANCIAL RESULTS
VEON's results presented in this earnings release are based on IFRS and have not been audited. "EBITDA" or "reported EBITDA" presented in this document is called "Adjusted EBITDA" in the MD & A section.
Certain amounts and percentages that appear in this earnings release have been subject to rounding adjustments. As a result, certain numerical figures shown as totals, including those in tables, may not be an exact arithmetic aggregation of the figures that precede or follow them.
All non-IFRS measures disclosed in the document, i.e. EBITDA, EBITDA margin, underlying EBITDA, underlying EBITDA margin, EBIT, net debt, equity free cash flow, organic growth, capital expenditures excluding licenses, last twelve months (LTM) Capex excluding licenses/Revenue, are reconciled to the comparable IFRS measures in Attachment C.
The financial results for Q1 2016 are also presented on a pro-forma basis assuming that the results of Warid have been consolidated (including intercompany eliminations) within VEON's results with effect from 1 January 2016, in order to assist with the year-on-year comparisons.
As of 7 November 2016, VEON Ltd. owns a 50.0% share of the Italy Joint Venture. We account for the Italy Joint Venture using the equity method. We do not control the Italy Joint Venture. All information related to the Italy Joint Venture is the sole responsibility of the Italy Joint Venture's management, and no information contained herein, including, but not limited to, the Italy Joint Venture's financial and industry data, has been prepared by or on behalf of, or approved by, our management. VEON Ltd. is not making, and has not made, any written or oral representation or warranty, express or implied, of any nature whatsoever, with respect to any Italy Joint Venture information included in this report. For further information on the Italy Joint Venture and its accounting treatment, see "Item 5—Operating and Financial Review and Prospects—Key Developments and Trends—Italy Joint Venture" "Explanatory Note—Accounting Treatment of our Historical WIND Business and the new Italy Joint Venture" and Note 6 to our audited consolidated financial statements included in our Annual Report on Form 20-F for the year ended 31 December 2016.
All comparisons are on a year-on-year basis unless otherwise stated.
MAIN EVENTS
VEON: A NEW PERSONAL INTERNET EXPERIENCE AND A NEW COMPANY NAME
On 30 March 2017, VEON announced that it had secured shareholder approval to change its name from VimpelCom Ltd. to VEON Ltd.
The company's intention to relaunch as VEON was announced at Mobile World Congress in Barcelona on 27 February 2017, marking an acceleration of the digital strategy to strengthen the core connectivity business, using innovative technology to drive the personal internet revolution in the markets we serve. VEON is both the new name of the company and a new personal internet platform. VEON intends to continue to build on the strength of its local brands and focus on maintaining its strong market positions. The company is continuing its drive to be a best-in-class provider of connectivity and communications services in the frontier markets it serves. The VEON platform, which will be deployed across all our markets in the coming year, transforms the customer experience for managing mobile accounts, in a radical move from the traditional bricks-and-mortar service. This unique customer engagement platform will integrate powerful data analytics and artificial intelligence, with a fresh take on messaging capabilities, enabling users and communities to connect by voice, text, picture and video through a beautifully-designed user interface.
VEON LISTED ON EURONEXT IN AMSTERDAM
On 4 April 2017, VEON marked its first day of trading on Euronext Amsterdam. VEON believes that Euronext Amsterdam was a logical choice for a listing given that the company has had its headquarters in the Netherlands since 2010 and now employs a workforce of over 500 people in Amsterdam, comprised of a mix of digital, technology, engineering, legal, finance, marketing, policy and communications personnel.
The listing on Euronext Amsterdam provides VEON with the opportunity to broaden our access to the Eurozone capital markets, raise its profile and visibility among European-based investors and increase its liquidity, as well as providing the potential for inclusion in European indices and extended stock coverage.
No new shares were issued in connection with the listing on Euronext Amsterdam and VEON continues to trade on the NASDAQ Global Select Market. The depositary bank has agreed to waive the cancellation fees for the first 70 million NASDAQ-listed American Depositary Shares ("ADSs") transferred into ordinary shares on Euronext Amsterdam.
As required by the EU Transparency Directive (Directive 2004/109/EC, as amended), VEON Ltd. hereby discloses that its home Member State is the Netherlands. The company continues to be incorporated in Bermuda.
VEON's FREE FLOAT INCREASED TO 24.1% AFTER TELENOR'S SALE OF VEON SHARES
VEON's free float increased further to 24.1% after Telenor East Holding II AS ("Telenor") sold 70,000,000 common shares in the form of American Depositary Shares ("ADSs") listed on the NASDAQ Global Select Market and common shares ("common shares") listed on Euronext Amsterdam at a public offering price of USD 3.75 per ADS or common share. The transaction settled on 12 April 2017.
VEON did not receive any proceeds from the sale of the shares by Telenor and Telenor's sale of the shares did not result in any dilution of the company's issued and outstanding shares.
FINAL 2016 DIVIDEND OF US 19.5 CENTS PER SHARE PAID ON 12 APRIL 2017
VEON paid a dividend in respect of the 2016 financial year in the aggregate amount of US 23 cents per share, comprised of US 3.5 cents per share paid as an interim dividend in December 2016 and US 19.5 cents per share as a final dividend paid on 12 April 2017.
VEON is committed to paying a sustainable and progressive dividend based on the evolution of the company's equity free cash flow. Equity free cash flow is defined as net cash flow from operating activities less net cash used in investing activities.
GTH'S SHARE BUY-BACK AND RELATED GDR PROGRAM CANCELLATION APPROVED BY ITS SHAREHOLDERS AND RESULTS IN AN INCREASE OF VEON'S STAKE IN GTH TO 57.7%
In March 2017, GTH announced the cancellation of the GDR listing. GTH previously announced on 16 January 2017 its intention to apply for the cancellation of the listing of its GDRs on the Official List (the "Official List") of the Financial Conduct Authority (the "FCA") and the cancellation of trading of the GDRs on the Main Market for Listed Securities of the London Stock Exchange plc (the "LSE"). On 20 March 2017, the Financial Conduct Authority announced that the Company's GDRs were cancelled from the FCA's Official List with effect from that time. The London Stock Exchange plc (the "LSE") also announced on 20 March 2017 that the GDRs were cancelled from admission to trading on the LSE with effect from that time. The associated depositary agreements terminated on 17 April 2017.
The cancellation of the 524,569,062 ordinary shares was approved at an extraordinary general meeting of GTH's shareholders on 19 March 2017 and took effect on 16 April 2017 after ratification by the Egyptian Financial Supervisory Authority of the minutes of the 19 March 2017 extraordinary general meeting. Accordingly, VEON Ltd.'s indirect interest in GTH's shares increased to 57.7% from 51.9%.
REFINANCING OF MATURING DEBT IN PROGRESS
On 29 March 2017, VimpelCom Amsterdam B.V., as the original borrower, and VimpelCom Holdings B.V., as the new borrower, entered into an amendment agreement with respect to a USD 500 million facility with AO "Alfa-Bank" as the original lender and agent, dated 2 April 2014. Pursuant to the amendment agreement, the maturity date of the facility has been extended to 17 October 2017. Further, VimpelCom Holdings B.V. has replaced VimpelCom Amsterdam B.V. as the borrower and the guarantee from VimpelCom Holdings B.V. has been terminated. In addition, VimpelCom Holdings B.V. has agreed that AO "Alfa-Bank" may assign certain of the principal amount of the facility (or transfer its obligations) to other specified lenders. On 29 March 2017, VimpelCom Holdings B.V. received confirmation from AO "Alfa-Bank" that it has assigned USD 350 million of the facility to Sberbank of Russia.
In addition, on 5 April 2017, VimpelCom Amsterdam B.V., as the original borrower, and VimpelCom Holdings B.V., as the new borrower, entered into a subsequent amendment agreement with respect to a second USD 500 million facility agreement with AO "Alfa-Bank" as the original lender and agent, dated 18 April 2014. Pursuant to the amendment agreement, the maturity date of the facility has been extended to 17 October 2017. Further, VimpelCom Holdings B.V. has replaced VimpelCom Amsterdam B.V. as the borrower, and the guarantee from VimpelCom Holdings B.V. has been terminated. In addition, VimpelCom Holdings B.V. has agreed that AO "Alfa-Bank" may assign certain of the principal amount of the facility (or transfer its obligations) to other specified lenders.
In addition, in Q1 2017, VEON repaid PJSC VimpelCom ruble bonds in an amount of USD 248 million. VEON also made a scheduled repayment in respect of VimpelCom Holding B.V. bonds, which were guaranteed by PJSC VimpelCom, in the amount of USD 349 million.
GROUP PERFORMANCE- Q1 2017
Reported total revenue increased 13% YoY, organic decrease of 1% YoY; adjusting for the leap year effect, total revenue was stable YoY on an organic basis Reported EBITDA increased 14% and includes exceptional costs of USD 30 million, mainly related to performance transformation (which in Q1 2016 amounted to USD 40 million) Underlying EBITDA increased organically by 0.5% YoY; underlying EBITDA margin increased organically by 0.6 p.p. to 39.1% Underlying equity free cash flow of USD 194 million in Q1 2017, which represents a substantial increase on the USD 41 million generated in Q1 2016 FINANCIALS BY COUNTRY
USD million
1Q17
1Q16
pro-forma Warid
1Q16
reported
Reported
YoY
Organic
YoY
Total revenue
2,281
2,105
2,017
13.1%
(1.0%)
Russia
1,097
885
885
24.0%
(2.1%)
Pakistan
370
351
273
35.4%
5.4%
Algeria
232
279
279
(16.8%)
(15.2%)
Bangladesh
151
155
155
(2.5%)
(1.2%)
Ukraine
143
135
135
5.7%
11.6%
Uzbekistan
153
165
165
(7.1%)
9.5%
HQ
-
-
-
Other and eliminations
135
135
125
8.0%
Service revenue
2,202
2,030
1,948
13.1%
(0.8%)
Russia
1,054
847
847
24.5%
(1.7%)
Pakistan
345
332
257
34.2%
4.2%
Algeria
228
276
276
(17.5%)
(15.8%)
Bangladesh
147
153
153
(3.8%)
(2.5%)
Ukraine
142
135
135
5.6%
11.5%
Uzbekistan
153
165
165
(7.1%)
9.6%
HQ
-
-
-
Other and eliminations
133
122
115
15.7%
EBITDA
861
778
758
13.6%
1.9%
Russia
409
328
328
24.9%
(1.4%)
Pakistan
154
136
116
33.1%
13.7%
Algeria
114
158
158
(27.9%)
(26.5%)
Bangladesh
69
70
70
(1.0%)
0.3%
Ukraine
77
71
71
7.9%
13.8%
Uzbekistan
79
100
100
(21.3%)
(7.1%)
HQ
(76)
(121)
(121)
(37.4%)
Other and eliminations
35
36
36
(5.0%)
EBITDA margin
37.8%
37.0%
37.6%
0.2p.p.
1.1p.p.
EBITDA underlying
891
818
798
11.6%
0.5%
Russia
412
328
328
25.4%
(1.0%)
Pakistan
160
139
119
34.0%
15.2%
Algeria
114
158
158
(27.9%)
(26.4%)
Bangladesh
69
75
75
(6.9%)
(5.7%)
Ukraine
77
70
70
9.2%
15.2%
Uzbekistan
79
97
97
(18.6%)
(4.1%)
HQ
(61)
(87)
(87)
29.0%
Other and eliminations
41
38
38
11.0%
EBITDA margin underlying
39.1%
38.9%
39.6%
(0.5p.p.)
0.6p.p.
Group revenue for Q1 2017 increased 13% year-on-year to USD 2.3 billion driven by currency appreciation and the Warid transaction with effect from 1 July 2016, while it decreased organically by 1%. Adjusting for the leap year effect, total revenue would have been stable YoY on an organic basis. The Group experienced continued weakness in Algeria and declining fixed-line revenue in Russia which was primarily mitigated by positive revenue trends in Pakistan, Ukraine and Uzbekistan. Mobile data revenue continued to show strong organic growth of 31% and total mobile customers increased 1% to 206.5 million at the end of Q1 2017, mainly driven by customer growth in Pakistan and Ukraine.
Group reported EBITDA in Q1 2017 increased 14% to USD 861 million while the underlying EBITDA was USD 891 million, reflecting an organic increase of 0.5%. The exceptional items of USD 30 million in this period primarily relate to the cost of the Group-wide performance transformation program. The reconciliation table for EBITDA and underlying EBITDA is set forth in Attachment C.
In Russia, total revenue in Q1 2017 organically declined 2.1%, mainly due to a decline in fixed-line service revenue. Mobile service revenue increased organically by 1%, driven by growth in mobile data, value added services and interconnect revenue, partially offset by a decrease in voice revenue. Fixed-line service revenue decreased organically by 14%, mainly driven by the effect of the strengthening ruble on foreign currency contracts and growing penetration of FMC customers. Beeline's mobile customer base decreased by 1.2% year-on-year to 57.0 million in Q1 2017, mainly due to a decline in migrant customers. Beeline Russia's EBITDA decreased organically by 1.4% while underlying EBITDA decreased 1.0%, after adjusting for exceptional costs related to the performance transformation program.
In Pakistan, the Group closed the transaction to merge Mobilink with Warid, strengthening its leading position and, as a result, Warid's financial results have been consolidated into VEON´s financial statements with effect from 1 July 2016. Total revenue grew organically by 5%, supported by growth in all revenue streams. Data revenue grew organically by 29%, due to successful data monetization initiatives, including attractive bundle offers and the unification of the tariff portfolio, together with continued 3G network expansion. Underlying EBITDA, excluding both restructuring costs related to the performance transformation program and integration costs related to the Warid transaction increased organically by 15%, and the underlying EBITDA margin was 43.4%, improving by almost 4 percentage points year on year.
In Algeria, total revenue decreased 15% and Djezzy continued to face customer churn and ARPU erosion, the latter exacerbated by price competition. The company expects this pressure to continue, as it will take time to stabilize its commercial proposition and its customer base. Djezzy's service revenue decreased organically by 16%, while data revenue organic growth remained strong at 58%, due to the higher usage and substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out. Underlying EBITDA, adjusted for exceptional costs related to the performance transformation program in Q1 2017, decreased organically by 26%, mainly due to revenue decline.
In Bangladesh, total revenue decreased organically by 1%, due to an organic decline in service revenue of 3%. This decline in service revenue was partially caused by the imposition of an incremental 2% supplementary duty on recharges, effective from June 2016 on top of the 1% surcharge that had already been introduced in March 2016, together with the gap in 3G network coverage versus the market leader. In addition, there was a period of intense price competition, which accelerated following the SIM-reverification process and which more than offset the continued increase in data revenue of 43%. The company's underlying EBITDA decreased organically by 6%, mainly due to the accelerated customer acquisition activity during the quarter.
In Ukraine, total revenue increased organically by 12% and mobile service revenue grew organically by 11%, driven by successful commercial activities and continued strong growth of mobile data revenue, which grew organically by 70%, driven by growing data customers, successful marketing activities and the launch of new data bundles. Underlying EBITDA, adjusted for performance transformation costs in Q1 2016 and Q1 2017, grew organically by 15%.
In Uzbekistan, total revenue increased organically by 9.5% and mobile service revenue increased organically by 9.6%, primarily as a result of the impact of Beeline´s price plans being denominated in U.S. dollars, together with increased revenues from interconnect services, value added services and mobile data traffic. In particular, mobile data revenue increased organically by 30%, driven by increased smartphone penetration, promotions and the launch of new bundled offerings. Underlying EBITDA decreased organically by 4.1%, excluding the positive effect of the reversal of a litigation provision and a reversal of a bad debts provision in Q1 2016. The decrease in underlying EBITDA was mainly driven by higher interconnect costs, increased content costs, customer costs and increased structural opex.
The HQ segment includes the costs of VEON's and GTH's headquarters in Amsterdam, the London digital office and the Eurasia Hub. In Q1 2017, HQ costs decreased year-on-year due to lower performance transformation costs.
Other includes the results of Kazakhstan, Kyrgyzstan, Armenia, Georgia, Tajikistan and intercompany eliminations.
INCOME STATEMENT ELEMENTS & CAPITAL EXPENDITURES
USD million
1Q17
1Q16
pro-forma Warid
1Q16
reported
Reported
YoY
Total revenue
2,281
2,105
2,017
13.1%
Service revenue
2,202
2,030
1,948
13.1%
EBITDA
861
778
758
13.6%
EBITDA margin
37.8%
37.0%
37.6%
0.2p.p.
Depreciation, amortization, impairments and other
(516)
(481)
(454)
13.6%
EBIT
345
297
304
13.5%
Financial income and expenses
(194)
(178)
(168)
15.4%
Net foreign exchange (loss)/gain and others
79
18
23
n.m.
Share of profit/(loss) of joint ventures and associates
(100)
(5)
(5)
n.m.
Profit/(loss) before tax
131
137
154
(15.3%)
Income tax expense
(142)
(118)
(117)
20.9%
Profit/(loss) from continued operations
(11)
19
37
n.m
Profit/(loss) from discontinued operations
-
196
196
n.m.
Profit for the period attributable to VEON shareholders
(4)
169
187
n.m.
1Q17
1Q16
pro-forma Warid
1Q16
reported
Reported
YoY
Capex expenditures
268
203
195
37.3%
Capex expenditures excl. licenses
263
158
150
75.1%
LTM capex excl. licenses/revenue
18.7%
18.2%
18.2%
0.6p.p.
Q1 2017 ANALYSIS
EBIT increased year-on-year in Q1 2017 to USD 345 million, due to higher EBITDA, partially offset by higher depreciation, mainly as a result of ruble appreciation and the Warid transaction with effect from 1 July 2016.
Profit before tax of USD 131 million in Q1 2017, decreased year-on-year as a result of a loss in the Italy joint venture of USD 89 million and an increase in finance costs of USD 28 million. The Italy joint venture loss was mainly driven by integration costs as well as accelerated depreciation and amortization recorded in Q1 2017. The increase in finance costs was mainly caused by the additional interest expense on the GTH bonds issued in April 2016 and the consolidation of Warid debt from 1 July 2016. This was partially offset by higher EBIT and increased net foreign exchange gain, mainly driven by the strengthening of ruble against USD.
Income tax expense increased in Q1 2017 to USD 142 million, mainly driven by higher profitability in countries with a higher nominal rate and a net deferred tax provision recorded in the quarter. In addition, a high effective tax rate is explained by the aforementioned net loss in respect of the Italy joint venture, which is already accounted for net of income taxes, and by non-deductible HQ expenses, which includes interest costs.
Prior to the Italy joint venture closing, WIND was accounted for as a discontinued operation and the Q1 2016 results were positively affected by the fair valuation of the call options embedded in the bonds.
In Q1 2017, the Company recorded a loss for the period attributable to VEON shareholders of USD 4 million.
Capex excluding licenses increased 75% to USD 263 million in Q1 2017, due to higher capex in Russia and Ukraine primarily as a result of procurement-related delays in the prior year and increased capex in Pakistan due to the integration with Warid and the related 3G and 4G/LTE network expansion. The ratio of LTM capex excluding licenses to revenue was 18.7% in Q1 2017. The Company maintains its strategy of investing in high-speed data networks to capture mobile data growth, including the continued roll-out of 4G/LTE networks in Russia and Algeria and 3G networks in Algeria, Bangladesh, Pakistan and Ukraine.
FINANCIAL POSITION & CASH FLOW
USD million
1Q17
4Q16
QoQ
Total assets
20,567
21,193
(3.0%)
Shareholders' equity
5,720
5,961
(4.0%)
Gross debt
10,240
10,489
(2.4%)
Net debt
7,661
7,162
7.0%
Net debt/underlying LTM EBITDA
2.1
2.0
USD million
1Q17
1Q16
Net cash from/(used in) operating activities
584
(237)
from continued operations
584
(362)
from discontinued operations
-
125
Net cash from/(used in) investing activities
(589)
(551)
from continued operations
(589)
(361)
from discontinued operations
-
(190)
Net cash from/(used in) financing activities
(746)
26
from continued operations
(745)
35
from discontinued operations
-
(9)
Assets decreased compared to Q4 2016 as the Company repaid USD 641 million of indebtedness by using cash at hand.
Gross debt decreased 2% quarter-on-quarter mainly due to repayments of ruble-denominated bonds of USD 248 million and HQ bonds of USD 349 million, partially offset by the new bridge loan in GTH of USD 200 million and the impact of the ruble appreciation against the U.S. dollar. Group total cash, cash equivalents and deposits at the end of Q1 2017 amounted to USD 2,579 million. Net debt increased 7% quarter-on-quarter, primarily due to the impacts of both the GTH Share Buy-Back of USD 257 million and of the ruble appreciation on ruble-denominated debt.
Net cash from operating activities increased YoY in Q1 2017 by USD 821 million, as the Q1 2016 amounts reflect the payment of USD 795 million of fines and disgorgements in relation to agreements with the SEC, DOJ and OM. Furthermore, the increase in net cash from operating activities was also driven by the increase in reported EBITDA, offset by payments made in order to settle the Iraqna litigation in an amount of USD 69 million.
Net cash flow used in investing activities increased due to an increase in capex.
Net cash used in financing activities was negative in Q1 2017 primarily due to the repayment of ruble bonds in an amount of USD 248 million and HQ bonds of USD 349 million. Furthermore, the cash outflow was driven by the GTH Share Buy-Back in an amount of USD 257 million and dividends paid to non-controlling interests in an amount of USD 69 million.
COUNTRY PERFORMANCE – Q1 2017
Russia Pakistan Algeria Bangladesh Ukraine Uzbekistan Italy RUSSIA
RUB million
1Q17
1Q16
YoY
Total revenue
64,507
65,921
(2.1%)
Mobile service revenue
52,348
51,835
1.0%
Fixed-line service revenue
9,660
11,271
(14.3%)
EBITDA
24,070
24,410
(1.4%)
EBITDA underlying
24,224
24,463
(1.0%)
EBITDA margin
37.3%
37.0%
0.3p.p.
EBITDA underlying margin
37.6%
37.1%
0.4p.p.
Capex excl. licenses
6,695
3,181
110.5%
LTM Capex excl. licenses /revenue
16.5%
18.1%
(1.5p.p.)
Mobile
Total revenue
54,822
54,586
0.4%
- of which mobile data
13,903
11,942
16.4%
Customers (mln)
57.0
57.7
(1.2%)
- of which data users (mln)
36.4
32.6
11.8%
ARPU (RUB)
302
293
3.2%
MOU (min)
273
315
(13.3%)
Data usage (MB/user)
2,565
1,931
32.8%
Fixed-line
Total revenue
9,685
11,335
(14.6%)
Broadband revenue
2,650
2,811
(5.7%)
Broadband customers (mln)
2.2
2.2
(0.4%)
Broadband ARPU (RUB)
403
422
(4.5%)
Both the macro-economic conditions and the ruble continued to stabilize during the first quarter, but the conditions and competition in the Russian market remain challenging. Total revenue in Q1 2017 declined 2.1% to RUB 64.5 billion, due to a decline in fixed-line service revenue.
Mobile service revenue increased by 1.0% to RUB 52.3 billion, driven by growth in mobile data, value added services, mobile financial services and interconnect revenue, partially offset by a decrease in voice revenue. Mobile data revenue continued its strong growth, increasing 16% to RUB 13.9 billion, which was attributable to bundle promotions, increased smartphone penetration, growth in mobile data customers and customer traffic growth. Mobile ARPU grew 3% year-on-year to RUB 302, driven by the continued efforts to simplify tariff plans and successful upselling activities, while also being supported by increased penetration of bundled propositions in the customer base.
Beeline's mobile customer base decreased by 1.2% year-on-year to 57.0 million in Q1 2017, mainly due to a decline in migrant customers. The Net Promoter Score ("NPS") position is at par with our main competitors. The take up for the fixed mobile convergence ("FMC") offer continues to be strong with more than 617 thousand customers.
Fixed-line service revenue decreased by 14.3% to RUB 9.7 billion mainly driven by the effect of the strengthening ruble on foreign currency contracts and growing penetration of FMC in the customer base.
Reported EBITDA decreased 1.4% to RUB 24.1 billion while underlying EBITDA decreased 1.0%, adjusted for exceptional costs related to the performance transformation program of RUB 154 million in Q1 2017 and RUB 53 million in Q1 2016. The underlying EBITDA margin was 37.6%, up from 37.1% in Q1 2016.
Capex excluding licenses more than doubled YoY during the quarter as a result of the accelerated roll-out of the high-speed data network, which lead to 59% 4G/LTE population coverage. The LTM capex to revenue ratio for Q1 2017 was 16.5% and LTM operating cash flow margin, defined as EBITDA underlying less capex, was 21.8% in Q1 2017.
PAKISTAN
1Q16 pro-forma results assume that the results of Warid have been consolidated (including intercompany eliminations) with effect from 1 January 2016
PKR million
1Q17
1Q16
pro-forma Warid
YoY
Total revenue
38.7
36.8
5.4%
Mobile service revenue
36.2
34.7
4.2%
of which mobile data
5.2
4.1
28.7%
EBITDA
16.2
14.2
13.7%
EBITDA underlying
16.8
14.6
15.2%
EBITDA margin
41.8%
38.7%
3.0p.p.
EBITDA underlying margin
43.4%
39.7%
3.7p.p.
Capex excl. licenses
3.6
2.1
73.5%
LTM capex excl. licenses/revenue
17.7%
20.7%
(3.0p.p.)
Mobile
Customers (mln)
52.5
48.3
8.7%
- of which data users (mln)
26.3
21.1
24.4%
ARPU (RUB)
231
245
(5.5%)
MOU (min)
609
628
(3.0%)
Data usage (MB)
465
304
52.8%
In July 2016, VEON closed the transaction to merge Mobilink with Warid, strengthening its leading position in Pakistan, and as a result, Warid's financial results have been consolidated into VEON´s financial statements with effect from 1 July 2016. The companies received merger approval on 15 December 2016, with retrospective effect from 1 July 2016. The company started re-branding to the "Jazz" brand in January 2017, with unifying distribution channels and processes, with the aim of simplifying the customer experience.
Despite the continuing aggressive price competition in the market, Jazz gained customer market share YoY in Q1, as it continued to show mid-to-high single-digit growth of both revenue and customer base.
Revenue growth of 5% YoY was supported by all revenue streams; in particular, data revenue grew by 29% YoY due to growth in data customers, stimulated by attractive bundle offers, the unification of the tariff portfolio and continued 3G network expansion. The customer base increased by 9% YoY, driven by continued customer satisfaction with Jazz's focus on price simplicity, distribution availability and transparency. Jazz sees data and voice monetization among its key priorities, underpinned by the ambition to offer the best network in terms of both quality of service and coverage. In addition, Mobile Financial Services ("MFS") revenue grew by 24% YoY as monthly active Mobile Wallets crossed the 2 million mark.
Underlying EBITDA margin, excluding PKR 0.6 billion of restructuring costs related to both performance transformation and the Warid integration, was 43.4% in Q1 2017, improving by almost 4 percentage points year on year.
Capex increased to PKR 3.6 billion in Q1 2017 while the LTM capex to revenue ratio decreased to 17.7% in Q1 2017 and the operating cash flow margin was 34%. At the end of the first quarter, 3G was offered in more than 350 cities while 4G/LTE was offered in over 50 cities.
The Warid integration is ahead of schedule and the merged entity has been providing unified on-net offers to its customers since October 2016. Gross synergies reached an annualized run-rate of over PKR 11 billion in Q1 2017.
The regulator has issued the Information Memorandum (IM) for the auction of 10 MHz paired spectrum and the auction is currently expected to take place in the second quarter of 2017. The base price of spectrum which will be auctioned has been set at USD 295 million.
ALGERIA
DZD billion
1Q17
1Q16
YoY
Total revenue
25.5
30.0
(15.2%)
Mobile service revenue
25.0
29.7
(15.8%)
of which mobile data
2.8
1.7
58.1%
EBITDA
12.5
17.1
(26.5%)
EBITDA underlying
12.6
17.1
(26.4%)
EBITDA margin
49.2%
56.8%
(7.6p.p.)
EBITDA underlying margin
49.2%
56.8%
(7.5p.p.)
Capex excl. licenses
2.9
2.9
0.4%
LTM capex excl. licenses/revenue
16.6%
14.2%
2.4p.p.
Mobile
Customers (mln)
16.1
16.7
(3.6%)
- of which mobile data customers (mln)
7.1
4.3
63.8%
ARPU (DZD)
513
586
(12.5%)
MOU (min)1
365
351
3.9%
Data usage (MB)
573
295
94.4%
1) MoU has been adjusted in 2016 and revised for 2015 due to a change of components in the definition of traffic
Although Djezzy's operations continued to generate strong margins during Q1 2017, the business has experienced continued pressure on results. Revenue decreased at double-digit rates and Djezzy continued to face customer churn and ARPU erosion, the latter exacerbated by price competition. The company expects this pressure to continue, as it will take time to stabilize its commercial proposition and its customer base.
In addition, the macro environment also remains challenging as characterized by an accelerating inflation rate, which rose to approximately 8% in February 2017.
Following the appointment of Matthieu Galvani as Chief Executive Officer of Djezzy on 26 January 2017, the recruitment of the remainder of the new leadership team has been completed in order to drive the turnaround and the transformation of Djezzy into a digital leader.
As disclosed in Q4 2016, the regulatory environment has recently improved in Algeria, although the mobile termination rate ("MTR") asymmetry for Djezzy is a topic still under discussion with the regulator.
From a taxation perspective, starting from January 2017, the new Finance law increased pressure through an increase of VAT from 7% to 19% on data services and from 17% to 19% on voice services, and also increased taxes on recharges from 5% to 7%. These higher indirect taxes influenced Djezzy's performance in relation to both revenue and EBITDA as these taxes could not be passed on to customers.
VEON's customer base in Algeria decreased 4% year-on-year to 16.1 million caused as a result of the competitive pressure in the market; while ARPU declined by 12% due to the combined impact of historic 3G coverage shortfalls, sub-optimal changes in early 2016 to both billing increments and the commission structure for indirect distribution, which were partially corrected in Q2 2016, and forced migrations from legacy tariffs from late 2015 onwards.
As a result, Djezzy's Q1 2017 service revenue was DZD 25.0 billion, a 16% reduction, while data revenue growth remained strong at 58%, due to the higher usage and substantial increase in data customers as a result of the 3G and 4G/LTE network roll-out.
The company is taking structural measures to improve performance and stabilize its customer base, including distribution transformation and mono-brand roll-out, accelerating its 4G/LTE network deployment, promoting micro campaigns with tailored services to increase satisfaction, data monetization activities and smartphone promotions coupled with bundle offers. The company believes that the simplified data centric pricing architecture, in place since Q3 2016 is contributing to the positive data revenue trend.
In Q1 2017, EBITDA decreased 27% to DZD 12.5 billion primarily due to the revenue decline while EBITDA margin remained strong at 49.2% mainly due to a decline in personnel costs driven by the performance transformation program. Underlying EBITDA decreased 26%, adjusted for exceptional costs of DZD 0.1 billion related to the performance transformation program in Q1 2017 and underlying EBITDA margin, net of VAT impact and tax impact on recharges, would have been at 51%.
At the end of Q1 2017, the company's 4G/LTE services covered 20 wilayas and more than 20% of the country's population. The 3G roll-out across all of Algeria's 48 wilayas has been completed and Djezzy is leading in NPS (Net Promoter Score).
Finally, in Q1 2017 capex was DZD 2.9 billion, broadly flat year on year, while the LTM capex to revenue ratio was 16.6% with a strong operating cash flow margin at 38%, showing stable sequential performance.
BANGLADESH
BDT billion
1Q17
1Q16
YoY
Total revenue
12.0
12.2
(1.2%)
Mobile service revenue
11.7
12.0
(2.5%)
of which mobile data
1.5
1.1
43.1%
EBITDA
5.5
5.5
0.3%
EBITDA underlying
5.5
5.9
(5.7%)
EBITDA margin
46.0%
45.3%
0.7p.p.
EBITDA underlying margin
46.0%
48.1%
(2.2p.p.)
Capex excl. licenses
0.8
1.3
(43.3%)
LTM capex excl. licenses/revenue
20.9%
22.7%
(1.8p.p.)
Mobile
Customers (mln)
30.5
31.6
(3.4%)
- of which mobile data customers (mln)
15.0
14.4
4.4%
ARPU (DZD)
128
125
2.3%
MOU (min)
305
311
(1.9%)
Data usage (MB)
304
157
93.2%
In Bangladesh, the operational focus during Q1 2017 continued to be on improving network coverage, in order to address the 3G gap vis-à-vis the competition, and on customer acquisition following the completion of the Government-mandated SIM re-verification program, which contributed to a slowdown of acquisition activity across the market from the earlier part of 2016.
In Q1 2017, excluding the results of the re-verification process, which resulted in 3.8 million SIM cards being blocked by Banglalink, the customer base would have increased by 9% YoY. On a QoQ basis, the customer base grew by 0.1 million in Q1 2017.
Total revenue in Q1 2017 decreased by 1% YoY while Banglalink's service revenue decreased 3% to BDT 11.7 billion. The low single-digit decline in service revenue was partially caused by the imposition of an incremental 2% supplementary duty on recharges, effective from June 2016, on top of the 1% surcharge already introduced in March 2016, together with the gap in 3G network coverage versus the market leader. In addition, there was a period of intense price competition, which accelerated following the SIM re-verification process and which more than offset the continued increase in data revenue of 43%. This data revenue growth was driven by data traffic growth of 93% along with 4% growth in active data users which resulted in a 2.3% growth in Banglalink's ARPU in Q1 2017.
In Q1 2017, Banglalink's underlying EBITDA decreased by 6% to BDT 5.5 billion, as a result of higher customer acquisition and higher costs of handsets, more than offsetting savings from the performance transformation program. As a result, in Q1 2017, the underlying EBITDA margin was 46%, which represents a YoY reduction of 2.2 percentage points.
In Q1 2017, capex decreased 43% YoY to BDT 0.8 billion, with an LTM capex to revenue ratio of 20.9% and an operating cash flow margin of 39%.
Banglalink continues to invest in efficient, high-speed data networks aiming to substantially improve its 3G network coverage, which covered 65% of the population at the end of Q1 2017.
UKRAINE
UAH million
1Q17
1Q16
YoY
Total revenue
3,871
3,468
11.6%
Mobile service revenue
3,560
3,199
11.3%
Fixed-line service revenue
295
259
14.0%
EBITDA
2,073
1,822
13.8%
EBITDA underlying
2,074
1,801
15.2%
EBITDA margin
53.6%
52.5%
1.0p.p.
EBITDA underlying margin
53.6%
51.9%
1.6p.p.
Capex excl. licenses
737
249
196.3%
LTM capex excl. licenses/revenue
20.6%
22.2%
(1.6p.p.)
Mobile
Total operating revenue
3,576
3,209
11.4%
- of which mobile data
845
496
70.4%
Customers (mln)
26.0
25.3
2.7%
- of which data customers (mln)
11.3
10.3
9.4%
ARPU (UAH)
45
42
7.9%
MOU (min)
574
572
0.2%
Data usage (MB)
699
229
205.8%
Fixed-line
Total operating revenue
295
259
14.0%
Broadband revenue
170
148
15.5%
Broadband customers (mln)
0.8
0.8
0.4%
Broadband ARPU (UAH)
69
61
13.9%
Kyivstar continued to deliver strong results in Q1 2017, despite a challenging macro-economic environment and a weakening currency and the company remains the clear leader in both revenue market share and NPS.
Total revenue increased 12% year-on-year to UAH 3.9 billion in Q1 2017 while mobile service revenue grew 11% to UAH 3.6 billion, driven by successful commercial activities and continued strong growth of mobile data revenue, which grew 70%, driven by growing data customers, successful marketing activities and the launch of new data bundles. As a result, data consumption per user more than doubled in Q1 2017 compared with the same quarter in the previous year.
Kyivstar´s mobile customer base increased 3% to 26.0 million in Q1 2017, as a result of improvements in churn and increased gross additions, which increased by 9% year-on-year driven by promotional activities for B2C customers. Q1 2017 ARPU increased by 7.9% to UAH 45.
Fixed-line service revenue strongly increased 14% to UAH 295 million, supported by fixed residential broadband (''FTTB'') revenue, which continued to outgrow the market, increasing 15%, driven primarily by FTTB re-pricing and the improved quality of the customer base. The fixed broadband customer base grew 0.4% to 818 thousand, and fixed broadband ARPU increased 14% YoY to UAH 69.
EBITDA increased 14% to UAH 2.1 billion in Q1 2017 and the reported EBITDA margin was 53.6%. Underlying EBITDA, adjusted for performance transformation costs in Q1 2016 and Q1 2017, grew 15% YoY, driven by higher revenue and lower interconnect costs, partially offset by higher roaming costs due to both increased traffic and a negative FOREX effect, increases in commercial costs and structural opex, mainly driven by license and frequency fees. Underlying EBITDA margin increased 1.6 percentage points to 53.6%.
Q1 2017 capex was UAH 737 million with an LTM capex to revenue ratio of 20.6%, and LTM operating cash flow margin, defined as EBITDA underlying less capex, was a strong 32% in Q1 2017. Kyivstar continued to roll-out its 3G network in Q1 2017 reaching a population coverage of 64% from 40% last year.
UZBEKISTAN
UZS bln
1Q17
1Q16
YoY
Total revenue
513
469
10%
Mobile service revenue
510
465
10%
- of which mobile data
134
103
30%
Fixed-line service revenue
3
3
(3%)
EBITDA
265
285
(7%)
EBITDA underlying
265
276
(4%)
EBITDA margin
51.6%
60.8%
(9.3p.p.)
EBITDA underlying margin
51.6%
58.9%
(7.3p.p.)
Capex excl. licenses
75
85
(11%)
Capex excl. licenses LTM/revenue
26.0%
12.1%
13.9p.p.
Mobile
Customers (mln)
9.5
9.5
1%
- of which mobile data customers (mln)
4.6
4.4
6%
ARPU (UZS)
17,767
15,877
12%
MOU (min)
537
548
(2%)
Data usage (MB/user)
341
218
56%
Beeline continues to hold the leading position in both revenue market share and NPS in a highly competitive market.
Total revenue increased 9.5% in Uzbekistan while mobile service revenue increased 9.6% to UZS 510 billion, mainly as a result of the impact of Beeline´s price plans being denominated in U.S. dollars and successful marketing activities, together with increased revenues from interconnect services, value added services and mobile data. Mobile data revenue increased 30%, driven by the continued high-speed data network roll-out, increased smartphone penetration and the launch of new bundled offerings. The overall customer base increased 1% to 9.5 million, reporting the first growth since Q4 2014, driven by strong gross additions and lower churn which improved on an annualized basis by 1 percentage point to 48% as a result of successful commercial activities during the quarter.
Reported EBITDA decreased 7.1% compared to the prior year and underlying EBITDA decreased 4.1%, excluding the positive effect of the reversal of a litigation provision of UZB 5.2 billion and a reversal of a bad debts provision of UZB 3.9 billion in Q1 2016. The decrease in underlying EBITDA was mainly driven by higher interconnect costs as a result of both higher off-net usage and a negative currency effect, together with increases in content costs, customer costs and structural opex. As a result, the underlying EBITDA margin was 51.6% in Q1 2017.
Capex was UZS 74.9 billion and the LTM capex to revenue ratio was 26%, mainly due to prepayments of equipment in Q4 2016 for 2017 deployment. The company continued to invest in its high-speed data networks as it improved the 4G/LTE coverage in Tashkent and increased the number of 3G sites by 36%. Further improvements to the high-speed data networks will continue to be a priority for Beeline in 2017.
The cash and deposits balances of UZS 2,476 billion (USD 689 million) are considered to be largely restricted from repatriation due to local government and central bank regulations.
ITALY JOINT VENTURE1
EUR million
1Q17
1Q16
YoY
Total revenue
1,552
1,519
2.1%
Mobile service revenue
1,048
1,056
(0.7%)
Fixed-line service revenue
269
263
2.3%
EBITDA
458
471
-2.9%
EBITDA underlying
517
471
9.7%
EBITDA margin
29.5%
31.0%
(1.5p.p.)
EBITDA underlying margin
33.3%
31.0%
2.3p.p.
Capex excl. licenses
240
276
(13.0%)
LTM capex excl. licenses/revenue
17.4%
18.0%
(0.6p.p.)
Mobile
Total revenue
1,259
1,251
1%
- of which mobile data
352
315
12.1%
Customers (mln)
31
31
(0.8%)
- of which data customers (mln)
19.5
18.6
5.0%
ARPU (EUR)
11.1
11.1
(0.4%)
MOU (min)
264
276
(4.1%)
Fixed-line
Total revenue
293
269
9.2%
Total voice customers (mln)
2.72
2.78
(2.2%)
ARPU (EUR)
28
27
2.9%
Broadband customers (mln)
2.4
2.3
2.2%
Broadband ARPU (EUR)
22
21
6.0%
Wind Tre total revenue in Q1 2017 increased 2.1% to EUR 1.6 billion driven by higher sales of mobile handsets coupled with 2.3% growth in fixed service revenue and broadly stable results in mobile service revenue, which grew by 0.4% when adjusted for the leap year effect.
This mobile service revenue performance was driven by a double digit increase in mobile internet revenue, up 12.1% to EUR 352 million, with mobile data customers growing 5.0% to 19.5 million. At the end of Q1 2017 Wind Tre's mobile customer base was 30.9 million subscribers, continuing its market leading position with a market share above 37%. In Q1 2017, mobile ARPU remained stable at EUR 11.1 with the 5.8% increase in data ARPU fully compensating for the decline in voice.
Fixed line service revenue was driven by an 8.6% growth in broadband revenue to EUR 152 million, with direct and broadband customers growing 1.8% and 2.4%, respectively. The fixed line direct customer base in Q1 2017 reached 2.5 million with the broadband component at 2.35 million as a result of the increased demand in Italy for broadband connections for both DSL and Fiber. Both fixed ARPU and broadband ARPU in Q1 2017 showed solid performance, increasing by 2.9% and 6.0%, respectively.
In Q1 2017, underlying EBITDA, excluding non-recurring items, grew strongly by 9.7% to EUR 517 million, driven by stable service revenue, cost efficiency initiatives and first synergies. As a result, the underlying EBITDA margin for Q1 2017 increased by 2.3 percentage points to 33.3%.
Capex in Q1 2017 totaled EUR 240 million and was primarily focused on capacity and coverage of the 4G/LTE and HSPA+.
The net leverage ratio (net debt / LTM EBITDA underlying2) was at 4.1x at the end Q1 2017.
1) The ''combined data'' for Q1 2016 consists of the sum of the WIND and 3 Italia businesses results, respectively, for the three months ended 31 March 2016, prior to the merger of the two businesses. The Q1 2016 data related to 3 Italia was obtained through due diligence performed as part of the merger process. The company has included this "combined data" because it believes that financial information on the Italy joint venture is relevant to its business and results for the financial quarter. Going forward, the company expects to include financial information related to the Italy joint venture in the publication of its financial results. It should be noted that the company owns 50% of the Italy joint venture, while the results above reflect the entire business
2) Q1 2017 LTM EBITDA underlying used for the leverage ratio excludes approximately EUR 119 million of integration costs
CONFERENCE CALL INFORMATION
On 11 May 2017, VEON will also host a conference call at 14:00 CEST (13:00 BST) through video webcast on its website and through following dial-in numbers. The call and slide presentation may be accessed at http://www.veon.com
2:00 pm CET investor and analyst conference call
US call-in number: +1 (646) 254 3388
Confirmation Code: 2030328
International call-in number: +44 (0) 20 3427 1916
Confirmation Code: 2030328
The conference call replay and the slide presentation webcast will be available until 15 May 2017.
The slide presentation will also be available for download on VEON's website.
Investor and analyst call replay
US Replay Number: +1 866 932 5017
Confirmation Code: 2030328
UK Replay Number: 0800 358 7735
Confirmation Code: 2030328
DISCLAIMER
This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified by words such as "may," "might," "will," "could," "would," "should," "expect," "plan," "anticipate," "intend," "seek," "believe," "estimate," "predict," "potential," "continue," "contemplate," "possible" and other similar words. Forward-looking statements include statements relating to, among other things, VEON's plans to implement its strategic priorities, including with respect to its performance transformation, among others; anticipated performance and guidance for 2017, including VEON's ability to generate sufficient cash flow; future market developments and trends; expected synergies of the Italy Joint Venture, including expectations regarding capex and opex benefits; realization of the synergies of the Warid transaction; operational and network development and network investment, including expectations regarding the roll-out and benefits of 3G/4G/LTE networks, as applicable and the Company's ability to realize its targets and strategic initiatives in its various countries of operation. The forward-looking statements included in this release are based on management's best assessment of the Company's strategic and financial position and of future market conditions, trends and other potential developments. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of demand for and market acceptance of VEON's products and services; continued volatility in the economies in VEON's markets; unforeseen developments from competition; governmental regulation of the telecommunications industries; general political uncertainties in VEON's markets; government investigations or other regulatory actions and/or litigation with third parties; failure to realize the expected benefits of the Italy Joint Venture or the Warid transaction as expected or at all due to, among other things, the parties' inability to successfully implement integration strategies or otherwise realize the anticipated synergies; risks associated with data protection or cyber security, other risks beyond the parties' control or a failure to meet expectations regarding various strategic initiatives, including, but not limited to, the performance transformation program, the effect of foreign currency fluctuations, increased competition in the markets in which VEON operates and the effect of consumer taxes on the purchasing activities of consumers of VEON´s services. Certain other factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risk factors described in the Company's Annual Report on Form 20-F for the year ended December 31, 2016 filed with the U.S. Securities and Exchange Commission (the "SEC") and other public filings made by VEON with the SEC. Other unknown or unpredictable factors also could harm our future results. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Under no circumstances should the inclusion of such forward-looking statements in this press release be regarded as a representation or warranty by us or any other person with respect to the achievement of results set out in such statements or that the underlying assumptions used will in fact be the case. Therefore, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date hereof. We cannot assure you that any projected results or events will be achieved. Except to the extent required by law, we disclaim any obligation to update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made, or to reflect the occurrence of unanticipated events. Furthermore, elements of this release contain, or may contain, "inside information" as defined under the Market Abuse Regulation (EU) No. 596/2014.
All non-IFRS measures disclosed in the document, i.e. EBITDA, EBITDA margin, underlying EBITDA, underlying EBITDA margin, EBIT, net debt, equity free cash flow, organic growth, capital expenditures excluding licenses, last twelve months (LTM) Capex excluding licenses/Revenue, are reconciled to comparable IFRS measures in Attachment C.
ABOUT VEON
VEON is a NASDAQ and Euronext Amsterdam-listed global provider of connectivity, with the ambition to lead the personal internet revolution for the 235 million+ customers it currently serves, and many others in the years to come.
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go to our website @ http://www.veon.com
For more information on interim financial schedules please refer to MD & A and financial statements section.
For more information on financial and operating data for specific countries, please refer to the supplementary file Factbook1Q2017.xls on VEON's website at http://veon.com/Investor-relations/Reports--results/Results/.
ATTACHMENT A: CUSTOMERS
Mobile
Fixed-line broadband
million
1Q17
1Q16
YoY
1Q17
1Q16
YoY
Russia
57.0
57.7
(1.2%)
2.2
2.2
(0.4%)
Algeria
16.1
16.7
(3.6%)
Pakistan
52.5
48.3
8.7%
Bangladesh
30.5
31.6
(3.4%)
Ukraine
26.0
25.3
2.7%
0.8
0.8
2.1%
Uzbekistan
9.5
9.5
0.5%
Other
14.9
15.0
(0.5%)
0.4
0.4
12.1%
Total consolidated
206.8
204.3
1.2%
3.4
3.4
1.6%
Italy
30.9
31.1
(0.6%)
2.4
2.3
4.3%
Total
237.7
235.4
1.0%
5.8
5.7
2.7%
ATTACHMENT B: DEFINITIONS
ARPU (Average Revenue per User) measures the monthly average revenue per mobile user. We generally calculate mobile ARPU by dividing our mobile service revenue during the relevant period, including data revenue, roaming revenue and interconnect revenue, but excluding revenue from connection fees, sales of handsets and accessories and other non-service revenue, by the average number of our mobile customers during the period and dividing by the number of months in that period. Wind Tre defines mobile ARPU as the measure of the sum of the mobile revenue in the period divided by the average number of mobile customers in the period (the average of each month's average number of mobile customers (calculated as the average of the total number of mobile customers at the beginning of the month and the total number of mobile customers at the end of the month) divided by the number of months in that period.
Data customers are mobile customers who have engaged in revenue generating activity during the three months prior to the measurement date as a result of activities including USB modem Internet access using 2.5G/3G/4G/HSPA+ technologies. Wind Tre measures mobile data customers based on the number of active contracts signed and includes customers who have performed at least one mobile Internet event during the previous month. For Algeria, mobile data customers are 3G customers who have performed at least one mobile data event on the 3G network during the previous four months.
Capital expenditures (capex) are purchases of new equipment, new construction, upgrades, software, other long lived assets and related reasonable costs incurred prior to intended use of the non-current asset, accounted at the earliest event of advance payment or delivery. Long-lived assets acquired in business combinations are not included in capital expenditures.
EBIT is a non-IFRS measure and is calculated as EBITDA plus depreciation, amortization and impairment loss. Our management uses EBIT as a supplemental performance measure and believes that it provides useful information of earnings of the Company before making accruals for financial income and expenses and net foreign exchange (loss)/gain and others. Reconciliation of EBIT to net income attributable to VEON Ltd., the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment below.
Adjusted EBITDA (called "EBITDA" in this document) is a non-IFRS financial measure. EBITDA is defined as earnings before interest, tax, depreciation and amortization. VEON calculates EBITDA as operating income before depreciation, amortization, loss from disposal of non-current assets and impairment loss and includes certain non-operating losses and gains mainly represented by litigation provisions for all of its Business Units except for its Russia Business Unit. The Russia Business Unit's EBITDA is calculated as operating income before depreciation, amortization, loss from disposal of non-current assets and impairment loss. EBITDA should not be considered in isolation or as a substitute for analyses of the results as reported under IFRS. Our management uses EBITDA and EBITDA margin as supplemental performance measures and believes that EBITDA and EBITDA margin provide useful information to investors because they are indicators of the strength and performance of the Company's business operations, including its ability to fund discretionary spending, such as capital expenditures, acquisitions and other investments, as well as indicating its ability to incur and service debt. In addition, the components of EBITDA include the key revenue and expense items for which the Company's operating managers are responsible and upon which their performance is evaluated. EBITDA also assists management and investors by increasing the comparability of the Company's performance against the performance of other telecommunications companies that provide EBITDA information. This increased comparability is achieved by excluding the potentially inconsistent effects between periods or companies of depreciation, amortization and impairment losses, which items may significantly affect operating income between periods. However, our EBITDA results may not be directly comparable to other companies' reported EBITDA results due to variances and adjustments in the components of EBITDA (including our calculation of EBITDA) or calculation measures.
Additionally, a limitation of EBITDA's use as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenue or the need to replace capital equipment over time. Reconciliation of EBITDA to net income attributable to VEON Ltd., the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment below.
EBITDA margin is calculated as EBITDA divided by total revenue, expressed as a percentage.
Gross Debt is calculated as the sum of long term debt and short term debt.
Equity Free Cash Flow is derived from consolidated statements of cash flows and is cash flow before financing activities; net cash from operating activities less net cash used in investing activities. Reconciliation to the most directly comparable IFRS financial measure, is presented in the reconciliation tables section in Attachment below.
Households passed are households located within buildings, in which indoor installation of all the FTTB equipment necessary to install terminal residential equipment has been completed.
MBOU (Megabyte of use) is calculated by dividing the total data traffic by the average mobile data customers during the period.
MFS (Mobile financial services) is a variety of innovative services, such as mobile commerce or m-commerce, that use a mobile phone as the primary payment user interface and allow mobile customers to conduct money transfers to pay for items such as goods at an online store, utility payments, fines and state fees, loan repayments, domestic and international remittances, mobile insurance and tickets for air and rail travel, all via their mobile phone.
MNP (Mobile number portability) is a facility provided by telecommunications operators, which enables customers to keep their telephone numbers when they change operators.
Mobile customers are generally customers in the registered customer base as of a given measurement date who engaged in a revenue generating activity at any time during the three months prior to such measurement date. Such activity includes any outgoing calls, customer fee accruals, debits related to service, outgoing SMS and MMS, data transmission and receipt sessions, but does not include incoming calls, SMS and MMS or abandoned calls. Our total number of mobile customers also includes customers using mobile internet service via USB modems. For our business in Italy, prepaid mobile customers are counted in our customer base if they have activated our SIM card in the last 13 months (with respect to new customers) or if they have recharged their mobile telephone credit in the last 13 months and have not requested that their SIM card be deactivated and have not switched to another telecommunications operator via mobile number portability during this period (with respect to our existing customers), unless a fraud event has occurred. Postpaid customers in Italy are counted in our customer base if they have an active contract unless a fraud event has occurred or the subscription is deactivated due to payment default or because they have requested and obtained through mobile number portability a switch to another telecommunications operator.
MOU (Monthly Average Minutes of Use per User) measures the monthly average minutes of voice service use per mobile customer. We generally calculate mobile MOU by dividing the total number of minutes of usage for incoming and outgoing calls during the relevant period (excluding guest roamers) by the average number of mobile customers during the period and dividing by the number of months in that period. For our business in Italy, we calculate mobile MOU as the sum of the total traffic (in minutes) in a certain period divided by the average number of customers for the period (the average of each month's average number of customers (calculated as the average of the total number of customers at the beginning of the month and the total number of customers at the end of the month)) divided by the number of months in that period.
Net debt is a non-IFRS financial measure and is calculated as the sum of interest bearing long-term debt and short-term debt minus cash and cash equivalents, long-term and short-term deposits and fair value hedges. The Company believes that net debt provides useful information to investors because it shows the amount of debt outstanding to be paid after using available cash and cash equivalents and long-term and short-term deposits. Net debt should not be considered in isolation as an alternative to long-term debt and short-term debt, or any other measure of the Company financial position.
Net foreign exchange (loss)/gain and others represents the sum of Net foreign exchange (loss)/gain, Equity in net (loss)/gain of associates and Other (expense)/income (primarily (losses)/gains from derivative instruments), and is adjusted for certain non-operating losses and gains mainly represented by litigation provisions. Our management uses Net foreign exchange (loss)/gain and others as a supplemental performance measure and believes that it provides useful information about the impact of our debt denominated in foreign currencies on our results of operations due to fluctuations in exchange rates, the performance of our equity investees and other losses and gains the Company needs to manage the business.
NPS (Net Promoter Score) is the methodology VEON uses to measure customer satisfaction.
Operational expenses (opex) represents service costs and selling, general and administrative expenses.
Organic growth in revenue and EBITDA are non-IFRS financial measures that reflect changes in Revenue and EBITDA, excluding foreign currency movements and other factors, such as businesses under liquidation, disposals, mergers and acquisitions.
Reportable segments: the Company identified Russia, Algeria, Pakistan, Bangladesh, Ukraine and Uzbekistan based on the business activities in different geographical areas. Intersegment revenue is eliminated in consolidation.
ATTACHMENT C: RECONCILIATION TABLES
RECONCILIATION OF CONSOLIDATED EBITDA
USD mln
1Q17
1Q16
reported
Unaudited
EBITDA
861
758
Depreciation
(390)
(332)
Amortization
(122)
(112)
Impairment loss
3
(8)
Loss on disposals of non-current assets
(7)
(1)
EBIT
345
304
Financial Income and Expenses
(194)
(168)
- including finance income
22
12
- including finance costs
(215)
(180)
Net foreign exchange (loss)/gain and others
(21)
18
- including Other non-operating (losses)/gains
(36)
(38)
- including Shares of loss of associates and joint ventures
accounted for using the equity method
(100)
(5)
- including Net foreign exchange gain
115
61
EBT
131
154
Income tax expense
141
117
Profit/ (loss) from discontinued operations
-
196
Profit/(loss) for the period
(11)
233
Profit/(loss) for the period attributable to non-controlling interest
6
(46)
Profit for the year attributable to the owners of the parent
(4)
187
RECONCILIATION OF CONSOLIDATED REPORTED AND UNDERLYING EBITDA
USD mln, unaudited
1Q17
1Q16
Pro-forma Warid
EBITDA
861
778
Performance transformation costs, of which
30
40
HQ and Other
21
31
Russia
3
1
Emerging Markets
6
8
EBITDA underlying
891
818
RECONCILIATION OF CAPEX
USD mln unaudited
1Q17
1Q16
Cash paid for purchase of property, plant and equipment and intangible assets
487
439
Net difference between timing of recognition and payments for purchase of property, plant and equipment and intangible assets
(220)
(236)
Capital expenditures
268
195
Less capital expenditures in licenses
(5)
(45)
Capital expenditures excl. licenses
263
150
RECONCILIATION OF ORGANIC AND REPORTED GROWTH RATES
1Q17 vs 1Q16
Total Revenue
EBITDA
Organic
Forex
Reported
Organic
Forex
Reported
Russia
(2.1%)
26.1%
24.0%
(1.4%)
26.3%
24.9%
Algeria
(15.2%)
(1.7%)
(16.8%)
(26.5%)
(1.4%)
(27.9%)
Pakistan
5.4%
30.2%
35.5%
13.7%
19.3%
33.0%
Bangladesh
(1.2%)
(1.3%)
(2.5%)
0.3%
(1.3%)
(1.0%)
Ukraine
11.6%
(5.9%)
5.7%
13.8%
(5.9%)
7.9%
Uzbekistan
9.5%
(16.6%)
(7.1%)
(7.1%)
(14.2%)
(21.3%)
Total
(1.0%)
14.1%
13.1%
1.9%
11.7%
13.6%
RECONCILIATION OF VEON CONSOLIDATED NET DEBT
USD mln
31 March 2017
31 December 2016
31 March 2016
Net debt
7,661
7,162
6,407
Cash and cash equivalents
2,172
2,942
2,928
Long - term and short-term deposits
407
385
351
Gross debt
10,240
10,489
9,686
Interest accrued related to financial liabilities
160
173
148
Other unamortised adjustments to financial liabilities (fees, discounts etc.)
20
40
57
Derivatives not designated as hedges
302
290
0
Derivatives designated as hedges
53
36
98
Other financial liabilities
89
89
-
Total other financial liabilities
10,863
11,116
9,989
RECONCILIATION OF REPORTED CASH FLOW FROM CONTINUED OPERATIONS AND UNDERLYING EQUITY FREE CASH FLOW
USD million
1Q17
1Q16
Net cash from operating activities
584
(362)
Exceptional items:
92
839
PT costs
23
44
Uzbekistan legal costs
795
IRAQNA provision
69
Underlying Net Cash Flow from operating activities
676
477
Net cash used in investing activities
(589)
(361)
Adjustments:
Other
(2)
(2)
Deposits & Financial assets
(105)
77
Underlying net cash flow used in investing activities
(482)
(436)
Underlying Equity Free Cash Flow
194
41
RECONCILIATION OF REPORTED AND PRO-FORMA WARID INCOME STATEMENT FOR Q1 2016
USD million
1Q16
reported
Warid
1Q16
pro-forma
Total revenue
2,017
87
2,105
Service revenue
1,948
82
2,030
EBITDA
758
20
778
EBITDA margin
37.6%
22.6%
37.0%
Depreciation, amortization, impairments and other
(454)
(27)
(481)
EBIT
304
(7)
297
Financial income and expenses
(168)
(10)
(178)
Net foreign exchange (loss)/gain and others
23
0
23
Share of profit/(loss) of joint ventures and associates
(5)
-
(5)
Profit/(loss) before tax
154
(17)
137
Income tax expense
(117)
(1)
(118)
Profit/(loss) from continued operations
37
(18)
19
Profit/(loss) from discontinued operations
196
-
196
Profit for the period attributable to VEON shareholders
187
(18)
169
RECONCILIATION OF REVISED FINANCIAL STATEMENTS 4Q16
Subsequent to the Q4 2016 earnings release certain accounting adjustments were made to the financial statements, which are reflected in the tables below.
Reported net profit for the year ended 31 December 2016 changed from USD 2,506 million as announced on 27 February 2017 to USD 2,420 million as reported in our Form 20-F. The change was due to the company completing the purchase price allocation pertaining to the formation of the Joint Venture in Italy. International Financial Reporting Standards require having such purchase price allocations completed within 12 months after the date of completion of the transaction. As a result, the company increased the depreciation and amortization expenses included in the share of results of joint ventures for the period of 5 November 2016 to 31 December 2016 by USD 86 million as compared to FY 2016 results announced on 27 February 2017. Consequently, the share of results of joint ventures for the period of 5 November 2016 to 31 December 2016 has changed from USD 145 million as announced on 27 February 2017 to USD 59 million. This non-cash adjustment had no impact on reported EBITDA.
REVISED STATEMENT OF FINANCIAL POSITION
USD mln
4Q16 as reported on February 27, 2017
Italy Joint Venture: Revised share of results
4Q16 revised
Assets
Total non-current assets
16,729
(86)
16,643
Total current assets
4,549
4,549
Assets classified as held for sale
1
Total assets
21,279
(86)
21,193
Equity and liabilities
Equity attributable to equity owners of the parent
6,047
(86)
5,960
Non-controlling interests
82
82
Total equity
6,129
(86)
6,043
Total non-current liabilities
8,593
8,593
Total current liabilities
6,557
6,557
Total equity and liabilities
21,279
(86)
21,193
REVISED STATEMENTS OF INCOME
USD mln
4Q16
as reported on 27 February 2017
Italy Joint Venture:
Revised share of results
4Q16
Revised
Operating profit
1,084
1,084
Profit/ (loss) before tax
433
(86)
347
Income tax expense
635
635
Profit/(loss) for the period from continuing operations
(202)
(86)
(288)
Profit/(loss) for the period from discontinuing operations
2,708
2,708
Profit for the period
2,506
(86)
2,420
Attributable to:
Non-controlling interest
92
92
Net income attributable to VEON shareholders
2,414
(86)
2,328
RECONCILIATION OF ITALY JV REPORTED NET RESULT IN VEON SHARE OF PROFIT/(LOSS) FROM JV AND ASSOCIATES
USD mln
1Q17
Italy JV reported net result
(542)
50% of Italy JV reported net result
(271)
D & A - PPA adjustment
190
D & A - PPA adjustment
(8)
Total PPA adjustment
182
VEON share of profit/(loss) from JV and associates
(89)
RATES OF FUNCTIONAL CURRENCIES TO USD1
Average rates
Closing rates
1Q17
1Q16
YoY
1Q17
4Q16
QoQ
Russian Ruble
58.84
74.63
(21.2%)
56.38
60.66
(7.1%)
Euro
0.94
0.91
3.6%
0.94
0.95
(1.3%)
Algerian Dinar
109.93
107.82
2.0%
110.07
110.40
(0.3%)
Pakistan Rupee
104.79
104.74
0.0%
104.83
104.37
0.4%
Bangladeshi Taka
79.50
78.47
1.3%
80.25
78.92
1.7%
Ukrainian Hryvnia
27.06
25.65
5.5%
26.98
27.19
(0.8%)
Kazakh Tenge
322.53
355.12
(9.2%)
314.79
333.29
(5.6%)
Uzbekistan Som
3,352.90
2,843.5
17.9%
3,595.02
3,231.5
11.2%
Armenian Dram
485.63
488.59
(0.6%)
483.45
483.94
(0.1%)
Kyrgyz Som
69.25
74.21
(6.7%)
68.61
69.23
(0.9%)
Georgian Lari
2.60
2.44
6.9%
2.45
2.65
(7.6%)
1 Functional currency in Tajikistan is USD
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/veon-reports-double-digit-revenue-and-ebitda-growth-and-nearly-usd-200-million-in-underlying-equity-free-cash-flow-in-q1-2017-fy-2017-guidance-confirmed-300455762.html
SOURCE VEON Ltd.
Related Links
http://www.veon.com